CBO: $10 Minimum Wage A Mixed Bag

The nonpartisan Congressional Budget Office (CBO) recently released a report presenting mixed reviews for President Obama’s key initiative of raising the minimum wage to $10.10 per hour. On the positive side, the report stated that 16,500,000 Americans would benefit from a $31 billion increase in earnings, including the 900,000 who will be lifted out of poverty. On the negative side, it also specified 500,000 jobs that would be eliminated due to increased labor costs. For example, it predicted that more employers would adopt technology to replace higher priced workers.

My experience as a technical recruiter leans toward market forces setting fair wages. There is always a cost involved when the government interferes with the free market. History shows that in almost every instance since 1938, when the U.S. government established a minimum wage, and the 30 times since then that the minimum wage has been raised, there has been a price to pay for American workers.

Unfortunately, almost 3,600,000 Americans are being paid $7.25 per hour (the current minimum wage) or less, according to the most recent figures by the Labor Department. This represents 4.7% of all hourly workers. Also, women are twice as likely to earn the minimum wage as men. Furthermore, the majority of minimum wage workers tend to be in jobs like food preparation and other service-related fields.

However, a lot of evidence, from both the CBO and other reputable sources, proves that increasing the minimum wage will significantly reduce entry-level opportunities restaurants and other service establishments can provide. For example, the most recent jobs report from the Bureau of Labor Statistics (BLS) shows that the category of Food Services and Drinking Establishments added 21,000 or 12% of the total 175,000 new jobs created last month. Furthermore, this sector has created an average of 27,000 new jobs per month for the last 12 months! Many of these jobs are at minimum wage. Therefore, it is highly likely that an increase in the minimum wage will reduce this darling sector of the BLS figures and further damage the chances of employees with limited skills or experience to enter the workforce.

In an ideal world no one should have to settle for minimum wage. For example, many of our executive recruitment clients crave highly skilled engineers, scientists, R&D, IT and technical professionals. Our phones at Strategic Search Corporation ring off the hook from their internal management recruiters begging us for such skilled talent that is in high demand, but short supply. Unfortunately, few of the workers at or near minimum wage possess these skills.

A better answer may be to provide more training and education to increase the overall talent of American workers. A good start is President Obama’s Digital Manufacturing initiative. However, as I wrote at http://www.recruitingblogs.com/profiles/blogs/digital-hubs-a-good-s... a lot more needs to be done. Our high school students are trailing the world in math and science, which are key preparatory subjects for R&D, engineering, scientific, IT and technical jobs. A better use of President Obama’s time and efforts may be focusing on improving our overall education. In turn our entire nation will benefit.

Thanks, Scott. I think it should be increased, and the usual "job killing" arguments are disproven:

Furthermore, I think those opposed to raising it should be required to support themselves and their families for 30 days solely performing a 40 hr minimum wage jobs (no outside income, benies, savings, etc.) I thought I should send that idea to Morgan Sperlock., but I just found out that was his first "30 Days" show back in 2005...

In November of 2012 Measure D (raised our minimum wage to $10 an hour with adjustments each year for inflation) passed in San Jose with almost 60 percent of the vote. The raise in the minimum wage took effect in March of 2013.

* According the San Jose Downtown Association, registered businesses were up 3 percent from 2012 to 2013, but a healthy 19 percent in the retail sector, which includes restaurants

* The City of San Jose reported 75,000 businesses registered at the start of 2013 prior to the hike, and 84,000 to begin 2014, following the hike (although city officials question any connection between minimum wage policy and new business registration)

* On a broader level, the latest unemployment figures in the San Jose Metropolitan Area show the unemployment rate dropped more than 1 percent since the hike went into effect, per the California Economic Development Department

* In the sector most influenced by wage fluctuation - restaurants and hospitality - the California EDD shows more than 4,000 jobs were created year-over-year

* The most recent figures for average weekly hours for all employees in the metro area, kept by the U.S. Bureau of Labor Statistics, are virtually identical now to what they were back in March

The very best part of this report is that the conservative think tank Employment Policies Institute was quoted in the article as stating that the minimum wage hike has had a negative effect on San Jose.

The reporter did his due diligence and found that the minimum wage hike had not had a negative effect on San Jose (granted, there are some disclaimers regarding the overall comparison, noted in the article.)

Keith, as always I appreciate your comments. However, we can agree to disagree. History shows that the government always does a very poor job in either creating jobs or augmenting wages. This is another example. If you read the nonpartisan report by the CBO at http://www.cbo.gov/publication/44995 you will see that 500,000 jobs will be lost as employers turn to more technology to replace the higher cost workers. Instead, President Obama should place more emphasis on improving our math and science education to uplift the skills of all workers!

Even if one assumes that the CBO's projections for employment loss are correct, the report indicatesthat the benefits of a $10.10 minimum wage outweigh the costs. The hike would lift about 900,000 people out of poverty, the budget office estimates. In addition, a minimum wage hike would directly benefit 16.5 million workers by giving them a raise, the report found.

Many economists are flabbergasted because all the best scholarship on minimum wage shows it does not cost jobs. The CBO provided absolutely no new analysis to refute that.

The reality is that the CBO report is overwhelmingly positive on the impacts of raising the minimum wage. 25 million Americans would receive more pay. This will lift almost a million Americans out of poverty. In an attempt at balance which false equivalences tend to skew, the CBO thought that crediting a debunked myth of potential job losses would make it seem more balanced.

This morning there was a very good discussion on the minimum wage on MSNBC with Demos’ Bob Herbert. He had two very important statements about the minimum wage and job losses that should be heeded.

“I have been hearing this all of my adult life,” Bob Herbert said. “Every time they have raised the minimum wage, nothing catastrophic has happened. That has never occurred. And not only that, we tend to forget that the minimum wage use to be worth, it actually was higher because it use to worth more than it is now. It’s been eroded by inflation. … There is plenty of room for the minimum wage to be raised in this country.”

Near the end he made the most important statement.

“It seems to me that if you can’t afford to pay your workers a reasonable wage,” Bob Herbert said. “You can’t afford to be in business. How is a wage any different for example like your overhead, your rent, than what you have to pay for supplies, and that sort of thing? The idea that workers should subsidize the profits of corporations I think is just silly. Pay workers a reasonable wage.”

Here are some noteworthy facts relative to the minimum wage.

The CBO report confirmed that increasing the federal minimum wage to $10.10 will help 900,000 people get out of poverty.

The CBO report confirmed that increasing the federal minimum wage to $10.10/hr will mean a raise for nearly 25 million working people.

600 economists, including seven Nobel laureates, signed a letter stating that ‘increases in the minimum wage have had little or no negative effect on the employment of minimum wage workers.’

Most states that have raised their minimum wage when lots of people were out of work have seen employment increase, not decrease.

A business with a business model incapable of paying a livable minimum wage is not a real business. A business who refuses to pay less than a livable minimum wage is at best a wealth transfer agent from the have-nots to the haves. Many businesses that pay a substandard minimum wage are really being subsidized by the taxpayers as their employees must seek welfare.

=====================================

A couple of other points;

1) Would YOU be willing to live/support a family through working 40 Hr/week on a minimum wage job without anything else?

2) Do you think it is right that any American should work FT and live in poverty?

3) Advancing one's education is very often a good idea. How's the family going to be supported during that time someone is working on a FT poverty-level minimum wage job and going to school? Who'll take care of the kids? Will it be you?

If you read and digested my whole article, you would have read that I do not want people to live at the poverty level. Instead, there should be a greater effort to upgrade the skills of ALL American workers especially through more math and science training and education (also in my article) versus wasting all the political capital, time and expense on raising the minimum wage. Most objective resources prove that this is not a very efficient use of President Obama's time. That is probably one major reason why his popularity has fallen to an all-time low of 41% according to the most recent survey conducted by the Wall Street Journal and NBC News!

Finally, anyone can cite statistics to support any claim. Therefore, the key is the source of those stats! There is no more objective and nonpartisan source than the CBO! This is contrasted by the sources you are quoting including the Daily Kos and The Huffington Post, which are NOT nonpartisan. Instead, both are very far left leaning and not objective publications.

We do not need to debate this anymore because I will not adopt your far left leaning assertions. Instead, we can agree to disagree.

Scott, I did allude to your point about STEM training and education (my end-of-comment Point 3).While I agree that this is a good idea and would help a number of people in the future, it would not help anyone NOW, as would be the case with increasing the MW.

Furthermore, while you state: “I do not want people to live at the poverty level” you oppose something which clearly and immediately would work to correct that as reported in the report which you cite and I basically agree with:

16,500,000 Americans would benefit from a $31 billion increase in earnings, including the 900,000 who will be lifted out of poverty.

Even conceding that 500,000 jobs would be eliminated, it does not say that those currently doing those 500,00 would be cast INTO poverty, and EVEN IF THEY WERE, that’s a net 400,000 people OUT of poverty and 16,500,000 Americans DOING BETTER THAN THEY ARE NOW

While you may not want people to live in poverty opposing this without an alternative, opposing something that would help people RIGHT NOW while proposing something that would keep people in it for an indefinite period of time sounds (until they get their STEM degree) like you at least TOLERATE poverty. It’s similar to many of the Senators and Representatives opposing ObamaCare: they really want to get rid of it, but can’t/won’t come up with something that would get more people better covered for less money (like every other developed country in the world has)…

Finally, I’ve learned over the years that when one person in a discussion starts calling the other names which they think are negative, while the other keeps to the facts, the first person has usually conceded their point.

I didn't call you any names. Instead, I accurately judged your far left leanings, which you confirmed (i.e. Keith “Proud Liberal” Halperin). Also, as I stated previously, the key to any statistics are their source. Once again, the Congressional Budget Office (CBO) is one of the most objective and nonpartisan. This contrasts all the sources you cite, including the Daily Kos and Huffington Post, which are NOTnonpartisan or even bipartisan. Instead, they are also very far left leaning.

Furthermore, though I do not agree with most of your assertions or your trying to put words in my mouth, I at least am very objective and let you make your points. Once again, we can agree to disagree.

There is one little problem with this minimum wage increase being touted as raising the uneducated out of poverty. With almost half the country on food stamps, child care assistance, chip, and multiple other assistance programs those thinking that 10.10 an hour will wave a magic wand fail to consider that all of the welfare programs are based on income levels.

Someone making 7.25 an hour with two kids will pay aprox. 25.00 a week for child care. If they go to 10.10 an hour they pay aprox. 675.00 a month for child are. At 7.25 an hour 2 kids food stamps are issued at aprox 400.00 a month. At 10.10 an hour it drops to a little less 200.00. No longer eligible for chip or wic. Med insurance on obamacare with subsidy aprox 150.00 a month for a single mother of two making 20k a year.

It's a well thought out and in my opinion, very smart political move that sounds really kissy when folks like Keith are convinced that millions of people will be lifted out of poverty. Do the math on the example I gave. That's a real one by the way, that I just worked through with a young woman trying to figure out how much she would have to make to be able to get off even partial welfare. What happens when you kick the min wage to 10.10 is that most people making 7.25 an hour are in worse shape than they were before because of the assistance they loose. And if anybody believes that people supporting a family of four on 7.25 an hour is not getting at least that much in gov. Benefits , ask them.

What the min wage increase will do is reduce the number on food stamps, child care assistance etc making the reduction in welfare payments a great political talking point by 2016, leaving those in poverty right where they are or worse. Nice move slick, shift the burden to the employer but we sure won't see a reduction in taxes that are now paying to fund welfare programs.

The really bad thing for the people working for 7.25 now is that when or if min wage goes to 10.10 they won't be working. For 10.10 an hour mr employer can hire an employee who is smarter and more educated. Then Keith will be able to hire some more of those 3.00 an hour assistants so he won't have to offshore those jobs to keep from paying 7.25 an hour to somebody in the US living in poverty.

Perhaps if we spent the billions we are spending on welfare now on work programs involving on the job training and education teaching marketable skills while earning 10 dollars an hour, welfare assistance would not be a giveaway that puts people in a trap that a min wage increase won't get them out of and they still won't know how to do anything but supersize the problem

I agree Scott and I believe there is a way to educate people if they don't make more by being on welfare learning nothing.

Thanks Sandra. That's the real issue. In an ideal world it would be perfect to raise people's wages, but the key question is, "who is going to pay for this?" By further burdening employers, as the CBO rightly predicts, employers will do more with technology and there will be 500,000 less jobs as a result. It is simple economics.